Black Monday echoes as computers fail to restore confidence

The retreat from equities has been fueled by memories of 2008, when the Dow slumped 34 percent during the worst economic contraction in seven decades. Europe’s struggle to contain debt turmoil, which pushed daily swings in the S&P 500 to twice the five-decade average last year, and mishaps such as Knight Capital Group Inc.’s trading malfunction on Aug. 1 also hurt investor confidence.

“Today when there’s volatility, it scares people to death,” Timothy Ghriskey, 57, the chief investment officer at Solaris Group LLC, which manages about $2 billion in Bedford Hills, New York, said in a phone interview. “What it has taught me is that there’s no such thing as a free lunch. You can theoretically protect yourself on the downside, but when things come unhinged, nothing’s going to protect you.”

Stocks crashed in 1987 two months after the end of a five- year bull market in which the Dow average tripled. The 30-stock gauge was up 37 percent through the first nine months of the year before losing 9.5 percent in the week ended Oct. 16. The decline came amid concern that 10-year bond rates, then at about 10 percent, would increase and speculation that Congress planned to kill tax benefits for leveraged buyouts.

Black Monday

On Black Monday, Japan’s Nikkei 225 Stock Average fell 2.4 percent. By midday, stocks in London were down 10 percent. In New York, 11 of the 30 Dow components didn’t open in the first hour of trading. The Dow went on to fall 508 points, while the S&P 500 tumbled to 224 from 282.

In 1987 panic spread on Wall Street by phone and ticker tape. About $1 trillion in stock-market value was erased in four days, according to a report by a task force led by Treasury Secretary Nicholas Brady in January 1988. It took more than a year to restore it, compared with a week following the retreat on May 6, 2010.

Mike Earlywine, 47, a hedge-fund trader at Ecofin Ltd. whose first job was as a clerk at Salomon Brothers Inc. in New York, witnessed the magnitude of the 1987 plunge on the streets of New York’s financial district.